My pain is your gain though, because it got me thinking about three very important subjects that go hand in hand: life, death, and money. When you’re recovering, sick, dying, or when you’ve just lost a family member, the last thing anybody wants to think about is money. In times of crisis you want to have less financial stress, not more.

There are three things you absolutely must have in order to give you and your family financial peace of mind in times of crisis:

1. A proper emergency fund
2. A living will
3. A legal will

1) A Proper Emergency Fund

A well-stocked emergency fund can be a great help in times of crisis. Having little money set aside for times when you may not be able to work will help alleviate a great amount of stress on your family. Many people during their lifetimes will need to take a break from work due to illness or other stressful factors, and planning to have a well-stocked emergency fund may allow you to take the time off that you need to get better. If you or a member of your family needs take time off from work your emergency fund will be there to help alleviate some financial burdens. You can also add your emergency fund with a little bit more money to help cover unexpected funeral or medical costs in the future.

Conventional thinking says to have 3 to 6 months total living expenses in an easily accessible bank account at all times, but as you’ll see in BTG Explains: What Is An Emergency Fund? I advocate adding a little bit more money just in case, after all in times of crisis you can never have too much money!

2) A Living Will

As I mentioned before, we recently lost our much beloved pet rat Roo. As happens to many rats as they reach old age (they live for two years, and Roo was two years and four months…) they can suffer from degenerative illnesses, and in poor Roo’s case this meant a degenerative neuralgia, which robbed him of the use of his limbs. The question of whether or not to mercifully euthanized him came up several times in the past few months, and though I believe that we made the right decision at the right time, when we thought he was ready to go, one of the hardest things to deal with was the fact that we could never know for certain what his wishes were.

Would your family know what your wishes were, if something were to happen to you and you couldn’t communicate? One of the best ways to make sure that your wishes are known and that they legally will be carried out is to make sure that you have a living will.

A living will is different from a regular will. Wills deals with how your estate will be taken care of after you die, a living will deals with how you will be taken care of before you die, if you are unable to make those decisions for yourself. Living wills are something that everybody should be thinking at all stages of life. For example, in my case, I am young and have no dependents, and I decided not to create a will just yet (though this will change as my life’s situation does).

But being young and having no dependents doesn’t stop me from being hit by a bus tomorrow, or having a stroke, or having some sort of freak accident that would leave me incapacitated and incapable of making decisions about my own care. A living will is a legal document that makes all of you wishes known, and designates someone to make see that your wishes are granted.

This is a topic that I feel is so important that it will be dedicating an entire article to living wills. Stay tuned for BTG Explains: What Is A Living Will? / How Do I Get A Living Will? appearing Wednesday Npvember 19th, in which I’ll discuss the definition of a living will, what kind of information and personal wishes they include, and, most importantly, how to make one.

3) A Legal Will

As stated above, wills differ from legal wills: a legal will deals with personal care decisions before you die, while wills deal with personal financial and estate decisions after you die.

The death of a loved one is hard enough without throwing money and inheritance into the mix, and having your financial and estate wishes known and legally documented by your will can help your loved ones of what a lot of extra stress in an already stressful time for them.

Wills can help alleviate stress by detailing exactly who gets what and when. Wills are complex topic on their own so for now it’s just enough to know that you should have one if your life situation calls for it, and most probably, it does. I’ll be discussing wills and further details in next Wednesday November 26th’s,  BTG Explains: What is a will? / How Do I Make A Legal Will?

Now It’s Your Turn!

Have you ever experienced a time of crisis in which one of these three things has helped alleviate some of the stress? What advice would you give to others in a stressful life/death/illness situation?

©2008 Bridging The Gaap. All Rights Reserved.

In the meantime, why not check out some of these excellent and popular BTG articles? 

• Check out our extremely popular “Where’s My Money” free Excel Budget Template!
• BTG Explains: What Is A Debit Card is a must read, and will explain how to keep your money safe and out of the hands of scammers!
• What Is The Credit Crisis? is a succinct four part overview of our current economic woes. 
• Can you afford to have children? Compare The Cost Of Birth Control Versus The Cost Of Raising A Child!
• Do you routinely buy things to make yourself feel better? You may suffer from an I Deserve Mentality: Learn How To Recognize And Modify Harmful Spending Behaviours!

©2008 Bridging The Gaap. All Rights Reserved.

When the opportunity arose to write for the Logoworks small business newsletter I was elated, and nervous. I’d been running my own financial education website BTGNow.net for just under six months, providing high quality content for my readers, earning advertising revenue in return. The question facing me now, as I sat down to write this article, was what, if anything, had I learned through the experience? What pearls of wisdom had my experiences unearthed?

While brainstorming about this article, I realized I’d learned a number of things:

- I’d learned the value of time management that week where I was too busy to update because of work, a painful lesson that could have been avoided had I simply planned everything out ahead of time.

- I’d learned the value of quick, polite and timely communication, and how much people appreciate when you respond to emails and phone calls within 24 hours.

- I’d learned that one can’t count on customers to let you know if a product is defective (they just won’t use it anymore!), a lesson I learned when I saw my traffic figures plummet, all because I didn’t check whether or not a change to my site would display properly in a browser that 50% of my readers used (it didn’t).

But when everything was said and done, one simple lesson edged itself out from its competitors: the best lesson I’ve yet learned is that I Don’t Know Everything. I know what I know, but I also know what I don’t know.

And that has made all the difference, measurable in US dollars.

I chose to write about this because I believe that this is a lesson that successful business people have learned, and it’s applicable to any business and every business person. I believe that to be successful, I have to not just learn, but internalize this lesson too, and the earlier the better!

Sure, it seems obvious, perhaps even silly, after all no one can know everything. But think for a minute: how many good businesses fail because they dismiss customer complaints? How many fail because they don’t seek the help they need? How many resources are wasted when a company or business person thinks it can do all things perfectly (but then isn’t capable of doing even one thing particularly well)?

As a content provider in the financial education sector, the realization that I Don’t Know Everything impacted my business practices in a number of positive ways:

- I began to do far more detailed research, looking for better, higher quality sources to improve the quality of my articles. Consequently the quality and scope of my product increased.

- I began focusing on my strengths, which included writing and promoting the content, and interpreting my product statistics. This allowed me to provide a better product, as I began to write articles based upon what my readers were telling me they were interested in.

- I began outsourcing my weaknesses, such as having my website and logo redesign handled by outside sources. Outsourcing my weaknesses allowed me to have more time to focus on creating and promoting my product, which has lead to more traffic and a tripling of my September revenue just three weeks into October (Update! BTG’s total October revenue was 6 times that of September’s! Yeehaw!). 

- I began to realize exactly what I still needed to learn! Business, as in life, is a continual process of learning: when you stop learning, you die.

I’ve learned many things since I started this entrepreneurial journey but I firmly believe that the sooner one realizes the limits of their own abilities and knowledge, then the sooner they can focus on finding people, services, and information that will fill those gaps. Once one realizes that You Don’t Know Everything, that you’re not always right, and that you may not be the best person for the job, it allows you step bank, re-evaluate your situation, focus on your strengths, and outsource your weaknesses. And if a lesson this simple can help me succeed, just an Average Jane trying to make it in the business world, then chances are it can help you too.

About the Author
For more information about Sarah L. and BTGNow.net, please read the ABOUT BTG page!

©2008 Bridging The Gaap. All Rights Reserved.

What Is A Credit Card?

A credit card is a plastic card that allows a person to buy things on credit, allowing them to buy some things now and pay for them later. You can check out some other definitions here.

What Is The Difference Between A Debit Card And A Credit Card?

A debit card is a card linked to a bank account. You must have money in the bank account to use your debit card, and every time you make a purchase with your debit card. The amount of the purchase is taken directly from your bank account. For example, if you have $100 in your bank account and you make a $20 purchase with your debit card, $20 will be deducted from your account, leaving you with $80.

A credit card is different. A credit card is not linked to a bank account, and purchases are made on credit. Whoever issues the credit card is saying that they allow you to make purchases now, even if you don’t have the cash, but that you must pay them back later.

How Does A Credit Card Work?

Let’s say you qualify for a credit card from your local bank, with a $500 limit per month. You decide to go out to dinner and spend $50. You decide to pay for your meal with your credit card. This means that you have used $50 of your $500 credit. This means you now have $450 worth of credit available to you to use this month, and that at the end of the month you will be required to pay back this $50. Notice you did not need to pay cash, nor did you need to remove cash using your debit card from your bank account. You will however need to pay back this $50 at the end of the month.

What Is A Credit Limit?

Your credit limit is the maximum amount of money that you are allowed to charge your credit card. The credit limit in the example above was $500.

What Is A Credit Card Balance?

Your credit card balance is how much you have charged you credit card. The credit card balance in the above example was $50.

What Happens If I Can’t Pay Off My Credit Card?

What happens if you can’t pay back the $50 at the end of the month? The credit card company will then charge you interest on whatever amount you haven’t paid back at the end of the month. Let’s say that of the $50 charge that you have in your credit card. You could only pay back $20. You now have a $30 balance left on your credit card at the end of the month, meaning you still owe the credit card company $30, because you only paid off $20. The credit card company will now charge you interest on the remaining balance, in our case $30.

What Are Interest Charges?

When a person fails to pay off their credit card balances in full, they are charged interest. Interest charges are percentage of the total balance that has not been paid. This means that the person must now pay back the amount they still, owe, plus whatever amount of interest the credit card company is charging them for being late.

Let’s say your credit card carries an 18% annual interest charge. If we don’t pay off our $30 balance by the end of one year, we will owe a total of 30 x 18%, or $35.40. The extra $5.40 is interest we were charged because the $30 took a whole year to pay off.

Calculating monthly interest charges is a little bit more complicated and will be the subject of another article. For now it is enough to say that if you do not pay your balance off in full every month it will cost you money in the form of interest charges. Always strive to pay off your balance every month in full.

What If I Am More Than 30 Days Late In Paying My Credit Card?

If you are late by more than 30 days in paying off your balances not only will you be charged interest, but your personal credit rating will also suffer. Your personal credit rating will be discussed in another article, but for now you should know that paying off any debt late (or not at all) will lower your credit score, which can make it more difficult to access credit in the future. This applies to credit cards, but also to any bills you may have (utilities, cell phone, gym memberships etc…) and any other loans (car, mortgage, etc…). The key thing to remember is that you should always pay off your balance in full, every month!

How Many Different Types Of Credit Cards Are There?

Credit cards are big business, so you will find it kind of credit card for almost every kind of consumer. There are credit cards that give you reward points that you can redeem for stuff, credit cards that give you air miles credit cards for people with bad credit, and yes, even credit cards that will give you cash back on all your purchases.

Some retail stores offer their own credit cards, but these often carry a very high rate of interest and in most cases can only be used at that store.

How Do I Get A Credit Card?

Most banks, credit unions and caisse populaires will all offer their own line of credit cards. You can also contact one of the credit card companies such as Capital One, American Express, MasterCard, or Visa online or by phone.

Remember, ALWAYS DO YOUR RESEARCH! Not every card is right for everyone! Some people will be able to handle having a large amount of credit available to them, others will need only a small credit limit. Some people will prefer to earn Airmiles, while others may want to earn cash back. There’s no rush to get a credit card, so take the time to look at all the options and determine what’s best for you!

BTG Birthday Shout Out:

This article is dedicated to BTG reader Lisa P! Lisa’s comments were instrumental in creating the improved version 1.1 of BTG’s popular “Where’s My Money” Excel Budget Template, so I thought I’d return the favour. Happy Birthday Lisa, and thanks for the great comments!

©2008 Bridging The Gaap. All Rights Reserved.

I decided to write a post about this, because there are a lot of people asking about situations just like this on Yahoo Answers, so I thought I’d post a little primer on how to recognize financial scams. Let’s take a look at the 6 warning signs to look for!

How Can I Tell If It’s A Scam?

There are 6 warning signs to look for! Let’s go through the scam email I received and point them out one by one.

Warning Sign #1: This email was unsolicited (ie: I didn’t want or ask for it), and came from someone I didn’t know (ie: it didn’t come from a company or person I’d had prior contact with). I have no idea who this guy is (supposedly some kind of lawyer, but why would he use a hotmail account?), and no idea as to why he would be contacting me…starting to smell like a scam…

Warning Sign #2: SECOND NOTICE!!  is used as the subject heading, and the email makes multiple references to the fact that this is the second time they’ve tried to contact me. But think for a second, did you get a FIRST notice? By creating a sense of urgency, they are making it harder for you to feel like you can take the time you need to properly think about these things. Scammers use these types of words and phrases in their subject lines to get you to actually open the email, instead of ignoring it or deleting it. 

Here the scammer says a few times that this is the second time they’ve tried to contact me, but I NEVER received a first. I live in a first world country in 2008; most email does get delivered.

Warning Sign #3: Lawyer speak: Often these scams will use “official” sounding, really complex terms that your average person isn’t going to be able to understand. Take a look at the email I got: The codicil and last testament of the deceased? Surname identity? High court probate division?…Huh?!?

Also note that the deceased is never named (underlined in blue) because this is supposedly the second email, even though you never got the first one :/ . In some cases, they may name the deceased, but it is almost always someone you have never heard of, who would have no reason to know you (Nigerian Princes? So-called “long-lost” relatives you’ve never heard of who HAPPEN to have your last name?) Don’t fall for it!

Warning Sign #4: Poor English: this can be tricky to spot, especially if you’re just reading it quickly, or distracted by the huge amount of money these people seem to be offering you for free. In a lot of cases, improper English in the form of spelling and very obvious grammatical errors can easy to spot. But in some cases it can be more difficult, as we see in the picture below.

Who talks like that? Name Identity? Reckoned?  Someone is trying WAY to hard to sound British!

For those of you getting emails from “foreign” people or “royalty”, do not assume the poor English is due to the fact that they’re foreign, and of course they won’t speak English properly. This is not the case. Anyone important enough to need this kind of help will a) not seek it from you and b) hire someone who speaks perfect English. Poor English is a warning sign.

Warning Sign #5: A REQUEST FOR PERSONAL INFORMATION. This email is asking for my phone numbers my fax information and my address, but they can sometimes as for much more, including bank account numbers and your social insurance (US: social security) number. Scammers can do a hell of a lot with that kind of information. Do not release any personal information over email, over the phone, or in person. Never agree to phone anyone from an unsolicited email, and absolutely never agree to meet them.

What deal?  (underlined in blue) Also, these people have what, exactly? My LAST name and email address? How did they even get that? Even thumbing thorough the phone book would have given them more information. 

Warning Sign #5 and a half: ASKING YOU TO DO SOMETHING. Another warning sign is if they don’t ask for personal information, but do ask you to DO something, like deposit a cheque and send some of the money back. Often times these cheques will bounce once you have sent the money (meaning there was not enough money in the person’s account to allow the cheque to go through), which means you’ve now withdrawn and sent a total stranger a ton of money (likely pushing you into overdraft) for nothing. Do not do anything a scammer asks you to do.

Warning Sign #6: A sense of urgency: this is the same tactic as we discussed in warning sign #2, where scammers create a sense of urgency. They want you to feel like time is of the essence, because people who feel they can stop and think about things for a minute usually are able to realize it’s a scam.

These six warning signs are pretty common, but the trick is to always use your common sense. Stop and think before replying to ANY suspicious email, and NEVER give out any kind of personal information, ever. 

Have you ever received an email you thought was a scam? What made you think it was a scam? What happened? Leave a comment below and let us know!

N.B. Woohoo! This article was an Editor’s Pick at the 177th Carnival of Personal Finance, hosted by The Sun’s Financial Diary!

©2008 Bridging The Gaap. All Rights Reserved.

Overdraft is when your bank account has a negative balance.

What causes someone to go into overdraft?

To put it simply, people go into overdraft on their accounts if there is not enough money in the account to cover a certain request for money. Many things can cause someone’s account to go into overdraft, but the basic problem is that there isn’t enough money there to cover a request, causing you bank balance to run into the negative.

Some of the major reasons people may go into overdraft include:

1. Poor money management skills: Purchasing things when you don’t have enough money to buy them is not only dangerous to your financial well being, it’s also an excellent way to put yourself into overdraft, incurring hefty fees.
2. Automatic withdrawals: If you have authorized automatic withdrawals form your bank account, you need to make sure you have enough money in the account to cover the withdrawal. If you don’t, most of the time the transaction will not go through because there is not enough money to do so, and you can be charged a hefty fee. This happened to me once, as I forgot about an automatic withdrawal from my account into an ING sub-account for my christmas budget, and the overdraft fee was $40, which I was able to get reversed.
3. Bank or account fees: For those who do not have low-fee or no fee bank accounts, monthly or annual automatic fee withdrawals from your account can cause you to go into overdraft. The bank will take its fee when it is due, and if there isn’t enough money in the account to cover it, you will be sent into overdraft and will have to pay a fee. One should always have a “float” of $50-$100 in their accounts at all times to make sure their bank fees will never cause them to go into overdraft.
4. Bank or Merchant error: It rarely happens, but sometimes a purchase or charge that was $5 can accidentally be charged as $50. It doesn’t happen a lot, but sometimes banks and merchants make mistakes, which can cause you to go into overdraft. If this is the case however, the charges can usually be reversed, but always remember to keep those receipts and bank and credit card statements!

How much will I be charged if I go into overdraft?

Overdraft fees can range from a few dollars to upwards of $40 or $50 dollars. These fees are incurred every time your account balance dips below zero.  Also, some banks may charge you a hefty fee PER DAY that you are overdrawn (source). This cost can sometime be offset by purchasing overdraft protection, though that`s not the solution for everybody (more below). 

The important thing to remember is that it doesn’t matter by how much you are over drawn: simply being a few cents below a zero account balance is enough for them to charge you a large fee: this woman was charged 28 pounds ($56 CAD) for going 37p ($0.74 CAD) into overdraft (source, 2nd testimonial).

What can I do if I’ve been charged overdraft fees?

If you have incurred an overdraft fee, it never hurts to call the bank to see if you can negotiate a reduction or even a reversal of the fee. I was able to have my $40 overdraft fee reversed, but this was partly due to the fact that I hadn’t had any overdraft problems for at least 90 days and I believe due to the fact that I politely implying that I would be willing to take my business elsewhere.

Not every customer is a customer worth keeping however, and overdraft fees are big business for banks, especially in rough times such as we’re seeing with the Credit Crisis. (source) 

While there is some question as to the legality of overdraft fees, for now it is important to be aware of them, and to be aware that there is a high price to pay for dipping into overdraft, by accident or by design.

How can I protect myself from going into overdraft?

There are two ways:

1. Practice good money management skills: never spend more than you can afford, and always try to have some 50 or 100 dollars (or more as need be) extra in your account as a float in case you forget about bank fees that are coming due, or that automatic withdrawal you have into your emergency fund at the beginning of every month.
2. Most banks will allow you to purchase overdraft protection, which can be useful for some people, especially if you have to deal with many deposits and withdrawals that are difficult to time. Overdraft protection can be purchased for a monthly fee in addition to your current account fees, for which you will receive a certain amount of leeway should you run into overdraft. Some banks waive the fee for months where you do not use the overdraft protection. 

Overdraft protection is very similar to a line of credit, however, because in most cases you can write checks for the amount of overdraft protection your have, and you will pay interest on any amount within your overdraft protection that you do use.

Let’s look at an example: if you have $5000 worth of overdraft protection, it works in much the same way as a line of credit from a bank. You could write one or many cheques if you needed too for any amount, so long as it doesn’t exceed that $5000. Any amount that you do use will be subject to interest charges.

If you have overdraft protection and you manage to exceed even that (ex: you have $5000 worth of overdraft protection but you are $6000 into overdraft, you will pay overdraft fees as soon as you pass the limit of your overdraft protection (so in our example, you’d be hit with a hefty fee at $5000.01 and over).

What has your experience been with overdraft and overdraft charges? Leave a comment and let us know!

©2008 Bridging The Gaap. All Rights Reserved.

What Is A Debit Card?

A debit card is a plastic card that is linked to one or more of your bank accounts. Issued by a bank or financial institution, a debit card can be a useful replacement for cash, and in some cases can make buying things, and depositing or withdrawing cash much more convenient. They are not without their problems, however, which can include hefty NSF fees, and a risk that you will not be reimbursed if you are a victim of fraud.

How do I use my debit card?

You can use your debit card in a few ways:

1. At ATMs: You can use your debit card at most ATMs to withdraw cash at any time. Note that ATMs that do not belong to your particular bank branch will charge you fees, so try to cut down o the number of times you have to use and ATM to withdraw cash. You can also use your debit card at your bank’s ATM to deposit cash or cheques directly into your bank account.
2. At the store: if the retailer is equipped to accept debit cards, you may use your debit card to make purchases, just as you would cash. 
3. Online: some retailers now allow you to use your debit cards for online transactions. Personally, I feel a credit card makes for a safer online transaction, but it is worth mentioning that in some cases you can use your debit card to make purchases online.

How does a debit card work?

The debit card is linked to one of your bank accounts. Every time you make a purchase with your debit card, the amount of the purchase is automatically deducted from your bank account.

Let’s look at an example:

Say you have $50 in your bank account, and you buy $20 worth of food at the grocery store using your debit card. $20 will automatically be taken from your bank account and sent to the grocery store as payment for the food you bought, leaving you with $30 in your bank account.

What happens if I use my debit card and there’s no money in my bank account?

Two things will happen:

1. You will be informed that the transaction could not take place when you try to buy something: a little message will pop up on the screen that says INSUFFICIENT FUNDS, or something else that also means that you didn’t have enough money to make the purchase.
2. You may be charged a fee for trying to use your debit card when you don’t have enough money in your account to complete the transaction (some banks will simply block the transactions and not charge you this fee: you should always ask you bank first). These fees, called overdraft fees can be HUGE, sometimes as large as $40!

What’s to stop people from using my debit card?

Some people will read the last few paragraphs and worry that their bank account can be compromised by using the debit card? What’s to stop a thief from stealing your card and emptying your bank account? A very smart man thought of this, and came up with a protective measure called a PIN code.

What is a PIN code?

PIN stands for Personal Identification Number. Think of your PIN as the password to your debit card. When you first obtain your debit card from the bank, they will likely ask you to choose a PIN code right then and there. You will input your PIN into a pad, the teller should not ask you to tell them your PIN out loud, after all, it’s secret!

You will need to use your PIN every time you use an ATM, make a purchase, or go to the bank. The debit card cannot be used without this PIN code, so should you lose your wallet or have your debit card stolen, the thief will not be able to use your card to make purchases or withdraw money from your accounts.

Debit cards are relatively safe SO LONG AS YOU KEEP YOUR PIN CODE SAFE.

How do I keep my PIN code safe?

The following will help you keep your PIN safe:

DO:

• choose something easy for you to remember, but difficult for others to guess
• choose something you can memorize
• use your hands to cover your PIN when you are pressing the numbers, as the photo below shows:

DO NOT:

• write your PIN down (if you absolutely must, rearrange the numbers and keep it in a fireproof, locked box with the rest of your important documents).
• write your PIN down and leave it in your wallet
• write your PIN ON YOUR CARD >.<
• tell ANYONE your PIN (you don’t HAVE to tell anyone your PIN, ever; this includes family members, bank employees, friends, co-workers, etc…)
• choose birthdays, social insurance numbers, addresses, phone numbers and so on for your PIN…if someone steals your wallet they can easily access this information!

What should I do if I have lost my wallet or debit card?

Tell the bank immediately. Most big banks will have 24hrs service, so as soon as you notice your debit card or wallet is missing, tell the bank. They will immediately make it impossible for anyone to use that card. You must tell the bank as soon as possible, because the more time you wait, the more time thieves have to steal your money (and they work FAST).

What should I do if I am a victim of debit card fraud?

If you have been a victim of debit card fraud, immediately contact your bank and let them know the situation. The likelihood of you getting refunded if you are a victim of fraud increases if the bank and the police are able to catch the perpetrators, for which they need you and your experience.

For more information, click here to access Canada’s Office of Consumer Affairs, which has some great information about what to do if you are a victim of fraud.

Will I be refunded if I am a victim of debit card fraud?

Maybe, but maybe not.

The bank may not refund debit card fraud. The reasoning behind it is that a debit card has that extra layer or protection by requiring the user to input a PIN whenever it is used. The banks may not refund debit card fraud, because it’s your responsibility to keep your PIN safe.

As for whether or not you will get your money back, that’s a difficult matter. It seems the burden of proof is on Canadian Financial Institutions to prove that you were negligent in your use of your debit card or PIN code:

“Be aware that if - as a result of the investigation - your financial institution is not reimbursing your full losses, they are responsible for showing that, on the balance of probabilities, you contributed to the unauthorized use of your debit card. If you are not satisfied with this explanation, speak with your branch manager.” (source)

Still, “negligence” is a broad term. In some cases, doing anything that I told you NOT to do is enough to be considered negligent: for example, it is considered negligent on your part to write down your pin and keep it close to your card, to using a pin that is your telephone number (or other easily identified PIN), not notifying your bank as soon as you find out you were scammed, and so on (source).

For a complete list of what is considered negligence on your part, check out this list at Canada’s Office of Consumer Affairs.

For More Information:

Canada’s Office of Consumer Affairs’ website  about debit cards is quick, conscise and easy to understand. You should definately check out the following links from their site:

1. How can you protect yourself against debit card fraud?
2. How does fraud occur?
3. What should you do if you are a victim of debit card fraud?
4. When would you be liable for losses?
5. How much could you lose?

Now It’s Your Turn! 

©2008 Bridging The Gaap. All Rights Reserved.

Yesterday while perusing Facebook, I found that one of my friends was particularly anguished.

Here’s why:

on the bus - there was a poor family - a mother, father, the mother’s pimp, and two kids, a girl aged about 7, and a boy of about 5 or 6. the mother continually called her daughter a “dumb b****” and pulled her hair, while the girl yelled and swore at her parents. then the supposed “father” started banging his head on the window of the bus, so hard that everyone on the bus heard.

i had to get off the bus

No kidding :/

Her story really had an impact on me, first because of the horror it evokes, second because it made me re-consider everything I’m trying to acheive with this website. These people are part of BTG’s target market: the poor, the desperate, the forgotten, poor underclass of society.

This is the group of people BTG was founded to help, and to help help themselves. But are they listening? Or forget listening, can they even hear me, what with it being so expensive to use the internet in Canada?

And if they are able and willing to listen, what should I say to them? What knowledge can I pass along that would make a difference in their lives?

And what would they say back to me?

I think the answer to the last two questions is the same: I think they would tell me, and that I should, BRING IT BACK TO BASICS, tell people they need to know financially to survive, to live, and then to thrive.

With this in mind, it is my pleasure to introduce the BTG Basics Series:

BTG Basics will be a series of articles detailing the fundamental financial rights, financial education and financial products that you need to know about to survive in this world.

The first BTG Basics article will be posted later tonight, with further articles in the series happening at least once per week.

So let’s bring it back to basics, guys. Let’s start at the beginning, together, and work our way up from there.

©2008 Bridging The Gaap. All Rights Reserved.

What Is The Credit Crisis Part 4: The CRISIS

Why do businesses need credit?

Many businesses need credit for their day to day business operations. Some companies simply don’t have the cash to pay their suppliers, and do so with credit, while others simply prefer to do so for various reasons.

Remember how I said lots of institutional investors bought and held CDOs in their portfolios? Some big businesses ended up owning CDOs as well, and also saw their worth vanish with the default of the mortgages backing the securities (is this all greek to you? You probably haven’t read part 2 of this series!). With the decrease in the value of their assets, the companies had less that they could sell off or leverage during a crisis, and so became more likely to rely on credit.

Unfortunately, due to the credit crunch this credit became more difficult and more expensive to obtain (see why in part 3!).

Why is it a problem if big/small businesses can’t access credit?

During a credit crunch, it becomes far more difficult for companies, big or small, to get the credit they need from banks. This credit may be necessary to sustain day-to-day operations, therefore, if a company cannot obtain this credit it risks going out of business.

Let’s take the case of hypothetical automaker, which at this point in time needs credit from a bank to survive. If the automaker cannot access this credit, it risks going out of business. If the automaker starts having trouble, or goes out of business entirely, two things can happen:

1. Employees of the automaker no longer have a job.
2. Suppliers to the company might also risk going out of business.

1) Employees of the automaker no longer have a job: This is a problem because the unemployed no longer draw a salary, and therefore don’t have any money to spend. This means there may be a decrease in the overall level of consumer spending, which can spell trouble for an economy, especially one with recessionary fears.

This is because when consumers don’t have any money to spend on products, producers don’t make any money either: fewer people are buying their products, leading to a decrease in revenue. Firms that produce items that people aren’t buying risk going out of business, which leads to further unemployment: it’s a vicious circle. People need to have jobs to make money, and people need to make money to buy things; but when people lose their jobs, they stop making money, and can no longer afford to buy things, which leads to more producers going out of business, which leads to more job losses. And so it goes.

2) Suppliers to the company might also risk going out of business: we touched on this briefly in the preceding paragraph, but let’s take a more detailed look. Let’s say our automaker goes out of business, what other kinds of businesses might this collapse affect?

What about the company that provides electronics for the cars? If the automaker was a big customer of this firm, the electronic company might see its sales decreased substantially. This can put the firm in a precarious position depending on how big of a customer the automaker was: sometimes it’s a big enough customer such that if the automaker collapses, the electronics company would collapse as well. And that’s just the company that makes the electronics for the automaker’s cars: what about the company that provides the upholstery? What about the company that manufactures the CD players? The wheels? The seats? All of the supplier companies risk going out of business if the automaker collapses. As we touched on before, every firm that collapses creates more unemployment, which means less consumer spending, which in turn creates more unemployment.

So why are my investments being affected?

When a company starts getting into trouble, frequently it share price decreases and if a company gets into enough trouble in share price can drop dramatically. If a company’s shares become rapidly devalued, it’s a little bit like a sinking ship: everyone wants to get off, and no one wants to get on. People start selling their shares in this company, which in turn leads to greater devaluation of the company stock. If this happens, then even more people start selling their shares, which leads to greater devaluation: again it’s a vicious circle.

This is a problem for companies, because share equity (the money they get when they sell shares of their firm to ordinary people) can be an important source of financing. Cut off this source of financing and the company might find itself in trouble. An inability to obtain credit to make up for this loss of share equity only makes things worse. At this point, worthless assets, worthless stock, and an inability to obtain credit, the company becomes almost entirely dependent on the revenue from selling products to keep itself afloat; as we’ve seen, it doesn’t take much to effect a decrease in consumer spending.

Oh Jeez!

Yeah, I know.

So what can we do?

Ordinary people can do two things:

1. They can take a good, hard look at the economic policies of the political parties
2. They can continue to pay taxes

1) Observing economic policy: Ordinary people should take a good look at the credit crisis from a political standpoint as well, especially with the upcoming November 2008 elections (Canadians had their chance on October 14th 2008). You should look at economic policies and histories (such as their view and history of implementing regulation in the financial markets) of both major parties and then decide whether or not this affects your view your chosen candidate (it may, it may not). The economy is, of course, only one thing you should consider when voting, but it is important to realize that, in the words of my father: “Democracy is hard”, meaning you need to take the time to look at all parties, all policies, and your own feelings, which will allow you to make a more informed decision.
2) Continue to pay taxes: at this point, fixing the credit crisis is in the government’s hands as the crisis has simply grown too big, and too complex to be affected by individuals. So-called “bailout” plans, if properly thought out, may have a very positive effect on the current crisis gripping the global economy. But to fund such endeavours, the government needs money, and all the governments money comes, ultimately, from ordinary people like you and me.

What’s important now is that we make sure, through our votes and our tax dollars, that we never repeat the mistakes of the past.

For More Information:

You can check out this excellent video about General Motor’s current woes here and another one here. For more on GM plant closings, click here.

Follow this link for more infor about GM and several other automaker’s rapidly devaluing share price. 

A Note About This Article:

Gosh, it seems so simple in retrospect…but what did YOU think? Was this series helpful? Have I missed something you thought should be included? Are you still unclear about something? Let me know by leaving a comment below!

Part 1: The Credit - Part 2: The Collateral - Part 3: The Crunch - Part 4: The Crisis

©2008 Bridging The Gaap. All Rights Reserved.

What is the Credit Crisis Part 3: The CRUNCH

Why is it a problem for banks to have worthless assets?

The problem is that banks must trade with other banks to help sustain the stability of the economy. Banks, owing to the nature of deposits and withdrawls, can sometimes be short at the end of the day. Banks then often loan to one another overnight (the lender is often repaid the next day) because it is cheaper than borrowing from the Federal Reserve or The Bank of Canada. This represents a huge source of liquidity for banks and the economy as a whole (remember that liquidity just means how easy it is to access money).

When banks started seeing worthless assets on the statements of other banks, they became much more wary about loaning to one another (source).

Why are banks afraid to loan to one another?

Think of it this way: would you loan someone money if you didn’t think they could pay it back?

The banks see it the same way; a bank is not going to want to loan any money to another bank that has heavy losses: it would be like loaning money to someone who has already run themselves deeply into debt, someone who could not afford to repay you. Banks won’t loan other banks any money if they are afraid the borrower will never be able to pay back the loan.

When banks become unwilling to lend to one another they must borrow money from other sources such as the Federal Reserve or The Bank of Canada, which is more expensive and more difficult than borrowing from each other (this is purposeful on the part of the national banking institution, to encourage banks to loan to one another). Now that banks have increased expenses however, they must increase their revenue to compensate, and it’s at this point that the economy experiences a Credit Crunch.

What is a Credit Crunch?

A Credit Crunch is a period of time in which credit becomes more expensive and more difficult to obtain (source). Should one need to seek credit from a financial institution during a credit crunch, one would find that interest rates are higher on the loans (making credit more expensive), and that the qualifications for obtaining a loan are more strenuous (making credit more difficult to obtain, especially for people with below average credit histories).

Why do we enter a credit crunch when banks refuse to loan to one another?
When banks become unwilling to lend to one another they must borrow money from other sources such as the Federal Reserve or The Bank of Canada, which is more expensive than borrowing from each other (this is purposeful on the part of the national banking institution, as it encourages banks to loan to one another). Now that banks have increased expenses, they must increase their revenue to compensate. This mean loans with higher interest rates (ie: loans that are more expensive) and loaning money only to people who are likely to pay it back. 

What are the effects of the credit crunch on ordinary people?

Ordinary consumers will feel the effects of the credit crunch in 3 major ways;

1. Credit becomes more expensive: Because the banks must borrow at more expensive rates, they must also loan at more expensive rates to compensate. This translates to higher interest rates on consumer loans such as mortgages.
2. Credit is more difficult to obtain: Banks will still loan to consumers, just not to EVERY consumer. Just as people can lose faith in banks, banks can lose faith in some of their customers, and this is exactly what happened with the sub-prime section. Banks are no longer able or willing to extend credit to any yahoo who asks for it, not like they could (and did) before with the whole sub-prime mess. Therefore, if you pose an above average risk to the bank (or even an average rick) you may find it difficult to obtain credit, as banks are no longer willing or able to take a chance on you.
3. Oh yeah, there’s the little issue of a tanking economy…but we’ll talk about that in a second…

            

But again, the economy doesn’t care if Joe and Jane Smith aren’t eligible for a big mortgage: the economy cares when businesses, big or small, are unable to get the credit they need to survive.

And that, my friends, is where the CRISIS begins…let’s find out why in Part 4: The CRISIS!

A Note About This Article:

Banks and how they work are particularly fascinating subjects. Should you become interested in understanding how banks operate, consider checking out a good economics textbook at the library. Online sources can be very helpful, but you must beware: there’s a lot of very biased media (usually video) circulating that will claim to offer the “truth” about banking and banking institutions. It’s not the fact that some of the information may be controvercial that sets of warning bells, it’s when the “truth” is being used to push an agenda that bothers me. As a general rule, I tend not to pay too much to anything that a) is very clearly biased and/or b) can’t give any good sources/is not published by a credible source itself. Critical thinking caps on everyone!

This article was included in the 34th Money Hacks Carnival, hosted by Where You Are Now.

Part 1: The Credit - Part 2: The Collateral - Part 3: The Crunch - Part 4: The Crisis (Coming Oct 14th)

©2008 Bridging The Gaap. All Rights Reserved.